For the segment of shoppers determined to find deals on the products they buy, whether in their everyday practices or when they go to invest in durable goods, the effects of the COVID-19 pandemic on supply chain operations continue to be prominent. Consider three broad examples, related to food, holiday shopping, and appliances.
First, both low income people and the social services in place to help them are struggling mightily with food costs. The prices for staple pantry items such as peanut butter have risen from about $13 per case to an average close to $19. Sources of fresh protein, such as eggs, beef, and fish, are being subject to average price increases of approximately 15 percent. For low income consumers on tight budgets, such increases make it impossible to stretch their food dollars far enough to feed themselves and their families at all, much less with these sorts of fresh and healthy options.
The sources of such price increases are multiple, including the rising prices of logistics. For example, delivery by refrigerated trucks used require about $3000 per truck, before the pandemic; today, those delivery costs have reached $10,000 on average. Furthermore, shutdowns at various meat processing plants due to infections disrupted these supply chains so dramatically that production levels still have not made up for the gap.
At the same time as prices have risen and food supply chains have been disrupted, many more people have confronted financial instability and turned to social services, such as food banks, for help. Thus for example, the Oregon Food Bank received requests from 1.7 million people in 2020, more than twice the number who sought assistance in 2019. Faced with more demand, limited supply, and higher prices, nonprofit groups find themselves unable to meet their commitments to aiding people, with little hope for a resolution in sight.
Second, consumers across the income spectrum become deal-seekers around the holiday season, having been primed by years and years of sales promoted by retailers seeking to get them to buy gifts for everyone they know. But those sales are unlikely to be available this year, or if they are, they will not be as dramatic as in the past. According to one prediction, whereas holiday season discounts previously ranged around 10–30 percent, shoppers should expect deals (if they find them) of closer to 5 or 15 percent.
Here again, the reasons for these developments are multiple and closely related to supply chains. Because the bottlenecks created by COVID-19 have continued to keep products from flowing freely, many popular brands simply do not have inventory to sell. One web tracker identified a 172 percent increase in the number of out-of-stock messages appearing on retail sites across the Internet. With such a limited supply, the retail brands’ goal is to earn the best margins on the products they have, rather than lowering prices to move more inventory.
There is a potential bright spot for risk-taking deal seekers though. Because of delays in the supply chain, some seasonal items are likely to appear in stores later than they normally would. In these cases, retailers might be willing to offer deals on last minute decorations or gifts, to avoid having leftover holiday trends cluttering up their already messy inventory operations even further.
Third, when it comes to big ticket purchases like appliances, most consumers search for deals too, unless they are explicitly willing to pay more for high-end options. In the COVID-19–created supply chain context, those big spenders might be the only ones able to make any purchases. Due to the difficulties getting parts and raw materials for their products, most appliance manufacturers (as well as carmakers) have trimmed their production lines, focusing mostly on the most expensive models, on which they can earn higher margins. Whirlpool announced this strategy, noting that it had to prioritize building products at higher price points to be able to cover the increasing costs of the materials it purchases. Chevrolet stopped making inexpensive Malibu sedan models, even as it ramped up production on more expensive SUV models.
Beyond the cost factor, some of these limitations reflect the state of the global supply chain. Inexpensive Weber grills generally are manufactured in China, and getting them shipped to U.S. markets has proved difficult. But the more expensive grills get produced in the United States, so the company can make these versions more readily available to U.S. consumers—again, as long as they are willing to pay for the higher-end model.
These examples continue to reveal just how pervasive the implications of the COVID-19 have been, and will continue to be, for nearly every member of every supply chain, all the world over. But the risks for consumers already living with income insecurity appear more pressing. It’s one thing to cut back on Christmas presents. It’s another to be forced to go hungry.
- What are the prospects for low income or bargain shoppers with regard to the ongoing supply chain effects of COVID-19?
- Consider the various actors engaged in these different, conventional supply chains. What responsibilities does each of them have for resolving these challenges?
Source: Sharon Terlep and Austen Hufford, “Why It’s Easier to Find Expensive Appliances than Cheaper Ones,” The Wall Street Journal, October 4, 2021; Nelson D. Schwartz and Coral Murphy Marcos, “Higher Food Prices Hit the Poor and Those Who Help Them,” The New York Times, October 27, 2021; Suzanne Kapner, “Shoppers Find Discounts Are in Short Supply this Holiday Season,” The Wall Street Journal, October 25, 2021